CSSB 342(L&C): "An Act relating to risk based capital for insurers; and providing for an effective date."
00CS FOR SENATE BILL NO. 342(L&C) 01 "An Act relating to risk based capital for insurers; and providing for an effective 02 date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 21 is amended by adding a new chapter to read: 05 CHAPTER 14. RISK BASED CAPITAL FOR INSURERS. 06 Sec. 21.14.010. RISK BASED CAPITAL REPORTS. (a) A life and health 07 domestic insurer, property and casualty domestic insurer, or other insurer required by 08 the director shall, on or before March 1, submit to the director a report of its risk 09 based capital covering the previous calendar year, if required by the director. The 10 report must be in a form and contain the information required by risk based capital 11 instructions. A domestic insurer required to submit a report under this subsection shall 12 file the report with 13 (1) the National Association of Insurance Commissioners; and 14 (2) the insurance regulatory agency in each state in which the insurer
01 is authorized to transact business, if the insurance regulatory agency has requested the 02 report in writing from the insurer; a report requested under this paragraph shall be 03 delivered 04 (A) not later than 15 days from the receipt of a request if the 05 report has already been filed with the director; or 06 (B) at the time the report is filed with the director, if the report 07 has not been filed with the director. 08 (b) An insurer's risk based capital shall be determined under the formula 09 contained in the risk based capital instructions. 10 (c) If a domestic insurer files a report that the director determines to be 11 inaccurate, the director may adjust the report to correct the inaccuracy. The director 12 shall notify the insurer of an adjustment and the reason for it. 13 (d) If a domestic insurer transacts business only in this state and the insurer's 14 total annual written premium plus monetary consideration received on an annuity is 15 less than $2,000,000, the insurer may apply annually to the director for an exemption 16 from submitting the report required under this section. 17 (e) The director shall establish risk based capital instructions by regulation. 18 The instructions required under this subsection must be substantially similar to risk 19 based capital instructions adopted by the National Association of Insurance 20 Commissioners. 21 Sec. 21.14.020. COMPANY ACTION LEVEL EVENT. If a company action 22 level event occurs, the affected insurer shall submit to the director a plan under 23 AS 21.14.060. 24 Sec. 21.14.030. REGULATORY ACTION LEVEL EVENT. (a) If a 25 regulatory action level event occurs, the director shall 26 (1) require the affected insurer to submit a plan or a revised plan under 27 AS 21.14.060; if the level event is caused by the insurer's failure to adhere to a 28 previously filed plan or revised plan that has been accepted by the director, the director 29 may exempt the insurer from this requirement; 30 (2) perform whatever examination, analysis, or review of the assets, 31 liabilities, and operations of the insurer that the director determines necessary; and
01 (3) issue a corrective order specifying the action that the insurer is 02 required to take to eliminate the level event. 03 (b) When conducting a review of the insurer's plan or revised plan examining 04 or analyzing the assets, liabilities, and operations of the insurer or formulating a 05 corrective order with respect to the insurer, the director may retain an actuary, 06 investment expert, or other consultant. The affected insurer or affiliated person shall 07 pay the reasonable costs of a person retained by the director under this subsection as 08 ordered by the director. 09 Sec. 21.14.040. AUTHORIZED CONTROL LEVEL EVENT. If an authorized 10 control level event occurs, the director shall take the action necessary 11 (1) under AS 21.14.030(b) against the insurer; or 12 (2) to place the insurer under regulatory control under AS 21.78 if, 13 after a hearing under AS 21.06.180 - 21.06.240, the director determines it to be in the 14 best interest of the policyholders and creditors of the insurer, and of the public. 15 Sec. 21.14.050. MANDATORY CONTROL LEVEL EVENT. (a) If a 16 mandatory control level event occurs, the director shall take the action necessary to 17 place the insurer under regulatory control under AS 21.78. 18 (b) Notwithstanding (a) of this section, the director may delay taking action 19 under AS 21.78 for up to 90 days after the mandatory control level event occurs, if the 20 director finds there is a reasonable expectation that the mandatory control level event 21 may be eliminated within the 90-day period. 22 Sec. 21.14.060. RISK BASED CAPITAL PLAN. (a) If a plan is required 23 under this chapter or by order of the director in response to an event described under 24 AS 21.14.020 - 21.14.050, the plan shall be a financial plan that must include 25 (1) identification of the conditions that contribute to the level event; 26 (2) a proposal for corrective action that the insurer intends to take that 27 would be expected to eliminate the level event; 28 (3) projections for the insurer's financial results in the current year and 29 in the four subsequent years after the current year, with and without the proposed 30 corrective action, including projections of statutory operating income, net income, and 31 capital and surplus; the projections for new and renewal business must include separate
01 projections for each major line of business and separately identify each significant 02 income, expense, and benefit component; 03 (4) identification of the key assumptions affecting the insurer's 04 projections and the sensitivity of the projections to the assumptions; 05 (5) identification of the quality of, and problems associated with, the 06 insurer's business, including the insurer's assets, anticipated business growth, 07 associated surplus strain, extraordinary exposure to risk, mix of business, and use of 08 reinsurance in each case; and 09 (6) other information required by the director. 10 (b) An insurer shall submit a plan within 45 days 11 (1) of an event described in AS 21.14.020 - 21.14.050; or 12 (2) after the insurer receives notification from the director that the 13 director has rejected the insurer's challenge, if the insurer has challenged an adjusted 14 report under AS 21.14.080. 15 (c) Not later than 60 days after an insurer has submitted a plan to the director, 16 the director shall notify the insurer if the plan is satisfactory or unsatisfactory. If the 17 director determines the plan to be satisfactory, the insurer shall implement the plan 18 upon receiving notice from the director. If the director determines the plan is 19 unsatisfactory, notification to the insurer must state the reasons for the determination 20 and may propose revisions that, in the judgment of the director, will render the plan 21 satisfactory. Upon receiving notice from the director that a plan is unsatisfactory, the 22 insurer shall prepare a revised plan that may incorporate revisions proposed by the 23 director and submit the revised plan to the director. A revised plan shall be submitted 24 to the director within 45 days after the insurer receives notice that 25 (1) the original plan is unsatisfactory; or 26 (2) the director has rejected the insurer's challenge, if the insurer 27 challenges an unsatisfactory determination of the director under AS 21.14.080. 28 (d) A domestic insurer that files a plan or revised plan with the director shall 29 file a copy of the plan or revised plan with the insurance regulatory agency in each 30 state in which the insurer transacts business, if 31 (1) the state has a risk based capital provision substantially similar to
01 AS 21.14.090, as determined by the director; and 02 (2) the insurance regulatory agency of that state has made a request in 03 writing to the insurer. 04 (e) An insurer shall file the copy of the plan or revised plan required under (d) 05 of this section (1) within 15 days of the insurer's receipt of a request for the filing 06 from a state; or (2) by the date on which the plan or revised plan is filed in this state 07 under this section, whichever is later. 08 Sec. 21.14.070. FOREIGN INSURERS. (a) A foreign insurer shall, upon the 09 written request of the director, submit to the director a report described under 10 AS 21.14.010 not later than 11 (1) 15 days from the receipt by the foreign insurer of a request, if the 12 report has already been filed with the domiciliary state; 13 (2) 60 days from the receipt by the foreign insurer of a request, if the 14 report is not required to be filed with the domiciliary state; or 15 (3) the date on which the report is filed with the domiciliary state or 16 60 days from receipt by the foreign insurer of the request, whichever is earlier, if the 17 report is required to be filed but has not already been filed with the domiciliary state. 18 (b) Within 15 days after receiving a written request from the director, a foreign 19 insurer shall submit to the director a copy of a plan that is filed with an insurance 20 regulatory agency of another state. 21 (c) The director may require a foreign insurer to file a plan under 22 AS 21.14.060, if 23 (1) a company action level event, regulatory action level event, or 24 authorized control level event occurs with respect to a foreign insurer as determined 25 under 26 (A) the risk based capital statute applicable in the domiciliary 27 state of the insurer; or 28 (B) this chapter, if a risk based capital statute is not in force in 29 the domiciliary state that is substantially similar to this chapter; or 30 (2) the insurance regulatory agency of the domiciliary state of the 31 foreign insurer fails to require the foreign insurer to file a plan in the manner specified
01 under that state's risk based capital statute. 02 (d) If a foreign insurer fails to file a plan with the director as required under 03 this section, the director may order the insurer to stop writing new insurance business 04 in this state. 05 (e) If a mandatory control level event occurs that involves a foreign insurer, 06 the director may apply to a court under AS 21.78 for the liquidation of property of the 07 foreign insurer that is located in this state, unless a domiciliary receiver has been 08 appointed for the foreign insurer under the rehabilitation and liquidation statute 09 applicable in the foreign insurer's domiciliary state. 10 Sec. 21.14.080. HEARINGS. An insurer may request a hearing to challenge 11 an action of the director or request a stay of the director's action as provided under 12 AS 21.06.180 - 21.06.240. 13 Sec. 21.14.090. CONFIDENTIALITY; RESTRICTIONS ON USE. (a) Except 14 as provided in this subsection, a report required under AS 21.14.010, a plan required 15 under AS 21.14.060, the results or report of an examination or analysis of an insurer 16 performed under this chapter, and a corrective order issued by the director are 17 confidential and may not be made public by the director or another person without the 18 prior written consent of the insurer who is the subject of the report, plan, analysis, or 19 order. If the director, after giving the insurer and its affiliates who would be affected 20 by publication of the information notice and opportunity to be heard, determines that 21 the interests of policyholders, shareholders, or the public will be served by the 22 publication of the information, the director may publish all or part of the information 23 in the manner the director considers appropriate. This subsection does not prohibit the 24 director from releasing a report, plan, analysis, or order to an insurance regulatory 25 agency of another state. 26 (b) The calculation of risk based capital for an insurer constitutes a regulatory 27 tool that may indicate a need for corrective action, and the calculation may not be used 28 as a means to rank insurers. Except as otherwise required in this chapter, a person 29 may not directly or indirectly use information regarding the risk based capital of an 30 insurer. If a materially false statement regarding an insurer's risk based capital or an 31 inappropriate comparison of any other amount to the insurer's risk based capital is
01 published and the insurer is able to demonstrate with substantial proof, as determined 02 by the director, the falsity or inappropriateness of the statement, the insurer may 03 publish an announcement exclusively to rebut the materially false statement or 04 inappropriate comparison. 05 (c) The director may use the risk based capital instructions, report, adjusted 06 report, plan, and revised plan only for monitoring the solvency of an insurer or for 07 determining the need for corrective action by an insurer. Notwithstanding AS 21.39, 08 documents described in this subsection may not be considered or introduced as 09 evidence in a rate proceeding or used by the director to calculate or derive any 10 elements of an appropriate premium level or rate of return for a line of insurance that 11 an insurer or an affiliate is authorized to write. 12 Sec. 21.14.100. PENALTY FOR VIOLATION. (a) An insurer shall pay to 13 the division $100 for each day the insurer fails to file a report, and $1,000 for each 14 day the insurer fails to file a plan or revised plan in conformance with the 15 requirements of this chapter. 16 (b) If a report, plan, or revised plan has not been filed in conformance with 17 the requirements of this chapter, the director may, as provided 18 (1) under AS 21.09.150, suspend the authority of an insurer to enter 19 into new obligations or issue a new or renewal policy of insurance in this state; or 20 (2) under AS 21.34.070, declare a surplus lines insurer ineligible to 21 transact business in this state. 22 Sec. 21.14.200. DEFINITIONS. In this chapter, 23 (1) "adjusted report" means a risk based capital report that has been 24 adjusted by the director under AS 21.14.010; 25 (2) "authorized control level event" means 26 (A) a report, an adjusted report that has not been challenged, or 27 an adjusted report for which a challenge has been rejected, that is filed under 28 AS 21.14.010 and that indicates that an insurer's total adjusted capital is greater 29 than or equal to its mandatory control level risk based capital but is less than 30 its authorized control level risk based capital; or 31 (B) an insurer fails to respond to a corrective order issued under
01 AS 21.14.030 in a manner satisfactory to the director, if 02 (i) the insurer does not challenge the corrective order as 03 permitted under AS 21.14.080; or 04 (ii) after a hearing under AS 21.06.180 - 21.06.240, a 05 challenge to the corrective order by the insurer under AS 21.14.080 is 06 rejected by the director; 07 (3) "authorized control level risk based capital" means the number 08 determined under the risk based capital formula in the risk based capital instructions; 09 (4) "company action level event" means a report, an adjusted report that 10 has not been challenged, or an adjusted report for which a challenge has been rejected, 11 that is filed under AS 21.14.010 and that indicates that 12 (A) an insurer's total adjusted capital is greater than or equal 13 to its regulatory action level risk based capital but is less than its company 14 action level risk based capital; or 15 (B) if a life and health insurer, the insurer has total adjusted 16 capital that is greater than or equal to the insurer's company action level risk 17 based capital but is less than 250 percent of the insurer's authorized control 18 level risk based capital and that has a negative trend; 19 (5) "company action level risk based capital" means 200 percent of an 20 insurer's authorized control level risk based capital; 21 (6) "corrective order" means an order issued by the director specifying 22 action that the director has determined is required by the insurer under this chapter; 23 (7) "foreign insurer" means a foreign insurer as defined in 24 AS 21.90.900 but excludes an alien insurer; 25 (8) "level event" means a company action level event, regulatory action 26 level event, authorized control level action event, or mandatory control level event; 27 (9) "life and health insurer" 28 (A) means an insurer who transacts life insurance as defined in 29 AS 21.12.040 or disability insurance as defined in AS 21.12.050; 30 (B) does not include a benevolent association under AS 21.72, 31 a fraternal benefit society under AS 21.84, a health maintenance organization
01 under AS 21.86, or a hospital or medical service corporation under AS 21.87; 02 (10) "mandatory control level event" means a report, an adjusted report 03 that has not been challenged, or an adjusted report for which a challenge has been 04 rejected, that is filed under AS 21.14.010, and that indicates that an insurer's total 05 adjusted capital is less than the insurer's mandatory control level risk based capital; 06 (11) "mandatory control level risk based capital" means 70 percent of 07 an insurer's authorized control level risk based capital; 08 (12) "negative trend" for a life and health insurer means a negative 09 trend over a period of time, as determined by the "trend test calculation" in the risk 10 based capital instructions; 11 (13) "property and casualty insurer" means an insurer who transacts 12 disability insurance as defined in AS 21.12.050, property insurance as defined in 13 AS 21.12.060, casualty insurance as defined in AS 21.12.070, surety insurance as 14 defined in AS 21.12.080, marine or wet marine and transportation insurance as defined 15 in AS 21.12.090, or mortgage guaranty insurance as defined in AS 21.12.110; 16 (14) "regulatory action level event" means 17 (A) a report, an adjusted report that has not been challenged, or 18 an adjusted report for which a challenge has been rejected, that is filed under 19 AS 21.14.010, and that indicates that an insurer's total adjusted capital is 20 greater than or equal to its authorized control level risk based capital but is less 21 than the insurer's regulatory action level risk based capital; 22 (B) an insurer fails to file a report required under AS 21.14.010 23 by its due date, unless the insurer has provided a written explanation for the 24 failure by the due date that is satisfactory to the director and the insurer has 25 cured the failure not later than 10 days after the report is due; 26 (C) an insurer fails to submit a plan to the director within the 27 time period described in AS 21.14.060; 28 (D) a notification by the director to an insurer that a plan or 29 revised plan submitted by the insurer is determined by the director to be 30 unsatisfactory, if 31 (i) the insurer does not challenge the determination of
01 the director; or 02 (ii) after a hearing under AS 21.06.180 - 21.06.240, a 03 challenge of the director's determination by the insurer under 04 AS 21.14.080 is rejected by the director; or 05 (E) a notification by the director to an insurer that the insurer 06 has failed to adhere to the insurer's plan or revised plan, if the director 07 determines that the failure has a substantially adverse effect on the ability of 08 the insurer to accomplish the objectives of the plan or revised plan, if 09 (i) the insurer does not challenge the determination of 10 the director; or 11 (ii) after a hearing under AS 21.06.180 - 21.06.240, a 12 challenge of the director's determination by the insurer under 13 AS 21.14.080 is rejected by the director; 14 (15) "regulatory action level risk based capital" means 150 percent of 15 an insurer's authorized control level risk based capital; 16 (16) "revised plan" means a risk based capital plan revised by an 17 insurer, after the director has found the original risk based capital plan unsatisfactory 18 under AS 21.14.060; 19 (17) "risk based capital" means the amount of risk based capital and 20 surplus produced by the application of the risk based capital instructions, or other 21 amount the director determines after examination to be sufficient to support the 22 insurer's asset risk, underwriting risk, and credit risk, including the minimum capital 23 and surplus required under AS 21.09; 24 (18) "risk based capital instructions" means risk based capital 25 instructions for a life and health insurer or for a property and casualty insurer adopted 26 by regulation by the director under AS 21.14.010; 27 (19) "report" means the report of an insurer's risk based capital for a 28 calendar year as required under AS 21.14.010; 29 (20) "total adjusted capital" means the total of 30 (A) an insurer's statutory capital and surplus as reported under 31 AS 21.09.200 or 21.09.205; and
01 (B) any other item required under the risk based capital 02 instructions. 03 * Sec. 2. AS 21.78.040(a) is amended by adding a new paragraph to read: 04 (15) has reached an authorized control level event under AS 21.14.040 05 or a mandatory control level event under AS 21.14.050. 06 * Sec. 3. This Act takes effect January 1, 1995.